Abstract

Previous literature has shown that in poor countries with no access to international markets, low agricultural productivity implies that large fractions of the workforce must be employed in food production. Until a country can escape what Schultz (1953) termed “the food problem,” it is difficult for the economy to begin the process of releasing workers and productive resources to other sectors of the economy. This paper argues that, even in an open economy, the same dynamics can apply – and that low agricultural productivity can constrain the process of structural transformation. The key insight is that domestic transport costs make it expensive to supply food to rural areas, implying that many rural people will remain engaged in subsistence food production even through their productivity is quite low. We use a multi-region multi-sector model, calibrated to data from Ghana, to argue that high domestic transportation costs can reduce the benefits of openness.